Trusts & Trustees, Vol. 0, No. 0, February 2019, pp.
1–11
Trustee Residual Obligation: Is There a
Basis for It?
Ray Davern*
Abstract
This article critically examines the idea of a ‘re-
sidual obligation’ upon trustees in light of the
Hong Kong Court of Appeal’s judgment in
Zhang Hong Li and others v DBS Bank (Hong
Kong) Limited and others, the first appellate level
case to decide that trustees have a residual or high-
level supervisory obligation to beneficiaries, which
is not ousted by an otherwise effective anti-Bartlett
clause.
A Jersey trust dispute in Hong Kong
In Zhang Hong Li and others v DBS Bank (Hong Kong)
Limited and others,1 the Hong Kong Court of Appeal
upheld a claim for breach of trust by Ji Zhengrong
(‘Ji’) and her husband (‘Zhang’), the co-settlors and
discretionary objects2 of a trust established under
Jersey law (the ‘Trust’), against a Jersey incorporated
trust company (‘DBS Trustee’) that was wholly
owned, through a Hong Kong subsidiary, by DBS
Bank Limited of Singapore (‘DBS Bank’). DBS
Trustee had served as trustee of the Trust from its
establishment until shortly prior to the commence-
ment of litigation. The only asset of the Trust was a
British Virgin Islands business company, Wise Lords
Limited (the ‘PIC’), and DBS Bank provided profes-
sional director services to the PIC though another
subsidiary (‘DHJ Management’) once the Trust was
* Ray Davern, Maples and Calder, 200 Aldersgate St, London, EC1A 4HD, UK. Tel: þ 44 020 7466 1625; Email: ray.davern@maples.com
1. [2018] HKCA 435, 27 July 2018.
2. The dispositive provisions are not set out in the court’s judgment, but Yuen JA referred at para 11.1 to existing minor children and, it is to be inferred, the
discretionary class included them and, no doubt, remoter issue of Ji and Zhang born during the trust period.
3. para 11.1 (Yuen JA). It was, no doubt, because both Ji and Zhang had capitalized the PIC that they both became settlors of the Trust.
ß The Author(s) (2019). Published by Oxford University Press. All rights reserved.
1
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established. Many other claims were made by Ji and
Zhang, including against DBS Bank, its corporate ser-
vices entity, and a number of individuals either em-
ployed by DBS Bank or serving as directors or
otherwise involved in the management of DBS
Trustee and DHJ Management. All claims failed at
first instance and on appeal except those against
DBS Trustee and DHJ Management. This article is
concerned only with the successful claim against
DBS Trustee.
In early 2004, Ji and Zhang had incorporated and
capitalized the PIC, with Ji as its first director and sole
shareholder. It had opened an account with DBS
Bank and, on advice from a private banker employed
by DBS Bank, Ji and Zhang decided to settle the sole
share in the PIC into the Trust, which Ji did on 4
January 2005, seemingly for ‘asset protection and
family wealth succession’ purposes.3 DHJ
Management thereupon replaced Ji as director of
the PIC and she was simultaneously appointed its
investment adviser under a services agreement. Ji
was further authorized by DHJ Management to
issue investment instructions on the PIC’s behalf to
DBS Bank, which she did until late 2008.
From January 2005 to April 2008, the PIC invested
principally and successfully in mutual funds in the
People’s Republic of China with an overall profit of
more than US$17m. The investments had been made
for the most part with a credit facility afforded to the
PIC by DBS Bank in December 2006, initially for up
doi:10.1093/tandt/ttz006
2 Article
to US$10m. By July 2008, that facility had been
increased about a dozen times, incrementally, to
stand at US$100m and, as a result, the PIC had
become DBS Bank’s biggest customer. The mutual
funds investment strategy had, however, begun to
show diminishing returns after an October 2007
peak (though still turning a profit) and in May
2008, Ji switched the PIC’s strategy to investment in
foreign exchange transactions focusing on the
Australian dollar (‘AUD’), initially with some success.
The PIC’s investments from that point on were, how-
ever, greatly exposed in both being highly leveraged
(as of 18 August 2008, the PIC’s net assets were valued
at US$35.4m and its borrowing stood at US$96.4m—
representing a leveraging of 272 per cent) and
concentrating on the performance of one currency
(representing 81 per cent of the total investment port-
folio and about 302 per cent of net assets) relative to
the US dollar.
There was, however, a decline in AUD relative to
the US dollar from the end of July 2008 through
August 2008, which prompted Ji to adopt an exit
strategy from AUD via the purchase, from DBS
Bank, of two AUD ‘decumulators’ during August
2008. These were complex,4 high-risk products struc-
tured to allow exit on a weekly basis from AUD over a
year but the way Ji operated them during September
and October 2008 proved disastrous such that by
mid-November 2008, they were unwound and, in
addition to termination costs of AUD1.5m, the PIC
lost about US$15m on the AUD decumulators alone.
Apprised of such facts, a lay person might think it
surprising that Ji, the PIC’s financial adviser and prin-
cipal author of the Trust’s losses, should in her other
capacity as an object of the Trust, succeed in a claim
against DBS Trustee for failing to maintain a high-
level supervisory look out for the beneficiaries’ inter-
ests. But she did indeed succeed in a claim of that
sort5 both at first instance and on appeal: the trial
4. An email emanating from DBS Trustee just after they had approved the PIC’s purchase of them suggested very strongly that it had no, or no detailed,
understanding of how the product worked.
5. In fact, the claim as originally advanced was for dishonest breach of trust.
6. Namely, a clause designed to exclude or modify the duty, derived from the ‘prudent man of business rule’, to obtain information and, if necessary, intervene
in the affairs of a company in which a trustee holds at least a controlling interest, as applied by Brightman J in Bartlett v Barclays Bank Trust Co Ltd [1980] 1 Ch 515.
The Trust also contained exoneration provisions that are not the subject of this article.
Trusts & Trustees, Vol. 0, No. 0, Month?? 2019
judge found, and the court of appeal upheld his find-
ing, that DBS Trustee had a high-level supervisory
duty in relation to the PIC’s affairs that was not
ousted by any provision of the Trust and which it
had breached by giving approval, as it had done, for
the purchase of AUD, the grant of increased credit
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facilities, and the purchase of decumulators.
Trust lawyers, not to mention trustees, might think
it surprising for a different reason, namely, that the
terms of the Trust were explicitly drafted in a way that
suggested such claim should not be maintainable. It is
not just that Ji and Zhang were, as co-settlors of the
Trust, co-authors with DBS Trustee of those terms (a
point merely ad hominem, perhaps) but that, as ob-
jects of the Trust, they and all other objects (including
their minor children) took subject to them.
Upholding Ji and Zhang’s claim amounts to saying
that the express terms of the Trust—and, in particu-
lar, those determining key powers and duties of DBS
Trustee—took effect other than as a diligent reader
would fairly conclude, which is a serious matter for
trustees (most obviously), third parties dealing with
trustees, and, as a result, for beneficiaries generally.
The terms of theTrust
The terms of the Trust, so far as relevant and sum-
marized in the court’s judgment, included what was
described by leading counsel for DBS Trustee as a ‘top
line’ anti-Bartlett clause6: the First Schedule, para-
graph 4(a)(ii) imposed a mandatory requirement
(‘shall’) on DBS Trustee to leave the administration,
management, and conduct of the business of the PIC
to its directors and other authorized persons (which
would include Ji as investment adviser) unless DBS
Trustee had actual knowledge of dishonesty (the
‘Dishonesty Proviso’); paragraph 4 (a)(iii) imposed
an obligation on DBS Trustee to assume that the con-
duct of the business of the PIC was being carried on
Trusts & Trustees, Vol. 0, No. 0, Month?? 2019 Article 3

competently, DBS Trustee being under no duty to
take any steps to ascertain whether or not that as-
sumption was correct; and sub-paragraph 4(d) ex-
pressly provided that DBS Trustee would not be
liable in any way for loss to the PIC or the trust
fund arising from any act or omission of its directors
Prof Matthews, however, continued: ‘But there is a
residual obligation cast on [DBS Trustee] which these
clauses do not exclude.’
He immediately cited two possible sources of this
obligation as follows:

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or other persons (which would include Ji) even where
the act was dishonest, fraudulent, negligent, or
otherwise.
Paragraph 5 dis-applied any duty on DBS Trustee
to obtain information in relation to the PIC, apart
from certain statutory information, and DBS
Trustee was not to be liable for any loss arising
from not obtaining information or not verifying the
accuracy of any information it received.
The Jersey law expert evidence
The trial judge and the court of appeal were referred
to substantially concordant expert evidence as to
Jersey law on the effect of the First Schedule and
the court of appeal relied heavily on the evidence of
Prof Paul Matthews, DBS Trustee’s expert, in uphold-
ing the trial judge’s findings against DBS Trustee.7 In
particular, both experts agreed that the First Schedule
was compliant with Jersey law and, as Prof Matthews
put it:
The trustee as such trustee has in relation to the trust
property all the powers of a natural person acting as
the beneficial owner of such property.9 Although the
trustee has no obligation to interfere in the business of
the company, and no obligation to obtain information
regarding the company, it still has a power to do so,
because it is a member of the company.10 If circum-
stances were to arise where no reasonable trustee could
lawfully refrain from exercising those powers, a failure to
do so in such case would amount to a breach of trust.
(Emphasis added)
It seems that the court has not set out in its judg-
ment all parts of Prof Matthews’ opinion that are
relevant to a full appreciation of it since, as baldly
stated in these extracts, the argument made is highly
elliptical: the existence of residual duty is said to arise
from the existence of powers and concomitant ac-
countability for failure to exercise those powers in
circumstances where negligence of some kind can be
established.

Clause 4 released [DBS Trustee] from any obligation

to interfere in the business of [the PIC],8 and clause 5
relieved it from any obligation to obtain information
regarding [the PIC].
He further opined that ‘these clauses are effective in
Jersey law to exclude the obligations to which they
refer’.
An English diversion
To test this, it is worth first digressing to explore,
from the English law point of view,11 whether a re-
sidual, negligence-based obligation of this sort and
which is not ousted by even a well drafted anti-
Bartlett clause, has any plausibility on general
principles.

7. The apparent harmony between the experts meant, unfortunately, that neither was called at trial and their opinions were not, therefore, tested in cross-
examination or by questions from the trial judge. Since DBS Trustee would not have been able to attack its own expert, questions from the bench might have been
particularly important in this case.
8. Subject, one must assume, to the Dishonesty Proviso.
9. This is the first source of the asserted obligation. TJL 1984, art 24(1) provides: ‘Subject to the terms of the trust and subject to the trustee’s duties under this
Law, a trustee shall in relation to the trust property have all the same powers as a natural person acting as the beneficial owner of such property’ (emphasis added).
It would seem that Clauses 4 and 5 heavily modify this power in relation to DBS Trustee’s shareholding in the PIC such that Prof Matthews’ argument can have
application only to the power, which is said to be the second source of obligation (see following footnote).
10. This is the second source of the asserted obligation: DBS Trustee’s power in this regard under British Virgin Islands company law would find a parallel in
practically all common law jurisdictions having a company law that is based on English law.
11. British Virgins Islands and Cayman Islands law would be the same as English law on this point.
4 Article
The first problem with an obligation of this sort in
English law is that it is not clear what kind of neg-
ligence would be required in order to establish li-
ability. It is a question of what is described by the
words ‘circumstances . . . where no reasonable trus-
tee could lawfully refrain from exercising’ a power.
It seems, however, that it could not be anything less
than gross negligence (or something like it). This is
because a claim for ordinary negligence will fail if a
reasonable body of opinion would endorse the
action of which complaint is made, albeit that
others might reasonably not do so; even a claim
for ordinary negligence, therefore, requires a claim-
ant to show that the action complained of is one
which no reasonable agent could endorse.
However, to interpret the italicized words as mean-
ing that ordinarily negligent failure to obtain infor-
mation or intervene may inculpate, notwithstanding
the effectiveness of the exclusion of any duty to do
so unless the Dishonesty Proviso is engaged, would
be to deny any content to the idea that the putative
obligation is residual.
Moreover, the idea that, from the English law per-
spective, any such residual obligation is not
excluded by an otherwise valid anti-Bartlett provi-
sion (such as Clauses 4 and 5), is not maintainable.
This is because there are not two, distinct negli-
gence-based duties that an English trustee owes to
its beneficiaries in respect of its power to intervene
in the affairs of an underlying company in which it
has a controlling interest. In a case, where a trustee
holds all the issued shares in an investment company
without the benefit of an anti-Bartlett clause, it does
not make the slightest bit of sense to say that it has
the ordinary Bartlett-type duty plus, over and above
that, a high-level supervisory role such as would re-
quire it to spot, and take reasonable steps to prevent,
things going seriously awry (ie so seriously that not
noticing, or not doing something about the situ-
ation once noticed, would be grossly negligent): dis-
charging the high-level supervisory function is
12. Unless it is British Virgin Islands law and the trust in question is established under the Virgin Islands Special Trusts Act or VISTA.
13. See TJL (n 9) art 24(1).
Trusts & Trustees, Vol. 0, No. 0, Month?? 2019
included in the Bartlett-type duty (in the sense that
if a trustee failed to spot or do something about the
blindingly obvious, it would have breached its
Bartlett-type duty) as the greater includes the less.
Why, then, if you can validly exclude the Bartlett-
type duty up to, but not crossing, the point where
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the Dishonesty Proviso is engaged, is the high-level
duty not also excluded? How can there be any ‘resi-
due’ of the obligation that, somehow, is not
excluded?
The idea that, from the English law perspec-
tive, any suchresidualobligationis not excluded
by an otherwise valid anti-Bartlett provision
(such as Clauses 4 and 5), is not maintainable
Following the argument through, however, it is of
course true that a trustee holding the entirety of a
British Virgin Islands company’s issued and outstand-
ing ordinary shares will have a (British Virgin Islands)
company law power to obtain information and inter-
vene in the management of that company and that no
provision in a trust instrument, whatever its govern-
ing law,12 can deprive the trustee of that hybrid statu-
tory-contractual right.
It is also true that the trustee of a Jersey law gov-
erned trust may, subject to the terms of the trust in-
strument, have a statutory trustee power13 to achieve
the same outcome and, in other jurisdictions, where
no such statutory trustee power exists, that outcome
may be achieved by conferring equitable powers. As
will be argued below, it is vital to distinguish the first
from the other sources of power.
Back to Jersey
If the foregoing analysis of the idea of a negligence-
based residual obligation is sound for English, British
Virgin Islands, and Cayman Islands law, the question
arises: is Jersey really different? Howsoever viewed,
Prof Matthews’ evidence clearly answered that
Trusts & Trustees, Vol. 0, No. 0, Month?? 2019 Article 5

question in the affirmative (unless he is also of the
view that the foregoing analysis is wrong in relation to
English law).
Before examining the adequacy of possible
grounds for an affirmative answer, a preliminary
point might usefully be made about what Prof
In support of such argument, it might be said that
Article 21(1) of TJL may not be the subject of dero-
gation and it provides:
A trustee shall in the execution of his or her duties and
in the exercise of his or her powers and discretions (a)

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Matthews cannot have meant by the passage from
his evidence quoted above in italics: leading counsel
for DBS Trustee, in a submission rejected by the
court of appeal,14 argued that Prof Matthews must
be taken to have been referring to something more
than gross negligence ie knowledge such as would
engage the Dishonesty Proviso.15 But such reading
would make his evidence on residual obligation en-
tirely trite: it would amount to saying, in relation to
Clause 4, that, on the one hand, it validly excludes
the duty to intervene unless the Dishonesty Proviso is
engaged but, on the other, it does not exclude the
residual obligation to intervene which is, however,
breached only if the Dishonesty Proviso is engaged.
Since that is the same as saying that there is account-
ability, either way, only if the Dishonesty Proviso is
engaged, the very mention of residual obligation
would be entirely otiose.
More fundamentally, Prof Matthew’s argument
expressly posits that, in relation to a power of inter-
vention, there are (seemingly contrary to the
English position) not one but two negligence-
based duties that a trustee owes: (i) a Bartlett-type
duty which is an aspect of the duty to preserve and
enhance, so far as reasonable, the value of the trust
property (and which in Jersey has been codified in
Article 21(3) of the Trusts (Jersey) Law (TJL) and is
expressly subject to the terms of the trust16); and
(ii) a residual duty of intervention in circumstances
where no reasonable trustee would fail to intervene.
His argument is that an anti-Bartlett provision ex-
cludes only duty (i).
act (i) with due diligence, (ii) as would a prudent
person, (iii) to the best of the trustee’s ability and
skill; and (b) observe the utmost good faith.
The remainder of Article 21((2)–(8)) and Articles
22 and 23 set out the statutory duties of Jersey trus-
tees and Articles 24–29 set out the statutory powers
available to them. Many, but not all, of the statutory
duties and powers are ‘subject to the terms of the
trust’.
Since, however, Clauses 4 and 5 seem to have sig-
nificantly and validly modified the Article 24(1)
power to act, as regards the management of the
trust property (being the shares in the PIC) as the
beneficial owner of it, it seems that there are no
‘powers and discretions’ (within the meaning of
Article 21(1)) conferred by Article 24(1) to which
the Article 21(1)(a) duties of acting with reasonable
competence could apply.
Since, however, Clauses 4 and 5 seem to have
significantly and validly modified the Article
24(1) power to act, as regards the management
of the trust property (being the shares in the
PIC) as the beneficial owner of it, it seems that
there are no‘powers and discretions’ (within the
meaning of Article 21(1)) conferred by Article
24(1) to which the Article 21(1)(a) duties of
acting with reasonable competence could apply
The only power to which the Article 21(1)(a) duties
could apply, therefore, would be the company law

14. See para 6.9.

15. This submission was bolstered to some extent by Prof Matthews’ footnoted example, to which the court referred, of a circumstance in which no reasonable
trustee could fail to intervene, namely, ‘where the trustee was informed by a credible source that the directors of the company were stealing its assets’; whether that
would amount to ‘actual knowledge’ such as would engage the Dishonesty Proviso, is, however, a debatable question of construction of Clause 4, credible
information arguably conferring only ‘actual notice’ rather than ‘knowledge’.
16. This, it is to be inferred, is why Prof Matthews opined that Clauses 4 and 5 were effective under Jersey law: the statutory duty can be excluded but only so far
as consistent with the irreducible core content of trusteeship—thus the Dishonesty Proviso.
6 Article
power of DBS Trustee, qua member of the PIC, to
obtain information and intervene in its management.
The only power to which the Article 21(1)(a)
duties could apply, therefore, would be the
company law power of DBS Trustee, qua
member of the PIC, to obtain information and
intervene in its management
Perhaps the argument is, then, that this company
law power is one of the ‘powers and discretions’
within the meaning of Article 21(1) to the exercise
of which the non-modifiable Article 21(1)(a) duties
of reasonable competence necessarily apply and which
cannot, therefore, be excluded by Clauses 4 and 5.
If that is the argument, it would indeed be a second
source, under Jersey law, of a negligence-based duty
owed by a trustee to its beneficiaries in relation to the
management and administration of trust property,
quite distinct from the modifiable Article 21(3) duty
to preserve and enhance the value of the fund so far as
reasonable, and it might not be wholly inapposite to
term it ‘residual’ in the sense that, being non-modi-
fiable, it applies to whatever ‘powers and discretions’
the trustee has and is always ‘there’.
But the argument derived from this second source
of duty is fallacious. A brief consideration of the
opening words of Article 24 helps to understand
why: ‘a trustee shall, in relation to the trust property,
have all the same powers as a natural person acting as
the beneficial owner of such property (emphasis
added)’. The statutory ‘management and administra-
tion’ power set forth in Article 24(1), for the exercise
or non-exercise of which a Jersey trustee may be held
accountable, therefore, has as its object the trust prop-
erty. A trustee’s company law power to intervene in
the affairs of an underlying company is, however, an
aspect of the trust property itself, and not a power in
the relevant sense.
A trustee’s company law power to intervene in
the affairs of an underlying company is, how-
ever, an aspect of the trust property itself,
and not a power in the relevant sense
Trusts & Trustees, Vol. 0, No. 0, Month?? 2019
It is a red herring, and the source of fallacious
thinking which has be-devilled consideration
of this issue for some time, to think that the vari-
ous powers, rights, and immunities which inhere in
ownership by anyone of any asset confer extra
‘powers and discretions’ on a trustee owner for
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which he becomes, thereby, doubly accountable in
equity.
It is a red herring, and the source of fallacious
thinking which has be-devilled consideration
of this issue for some time, to think that the
various powers, rights, and immunities which
inhere in ownership by anyone of any asset
confer extra ‘powers and discretions’on a trus-
tee owner for which he becomes, thereby,
doublyaccountable in equity
A trustee is accountable to his beneficiaries for the
management and administration of any asset owned
by him (shares are not a special class) by reference to
his exercise or non-exercise of his statutory and ex-
press powers of management and administration and
his compliance or non-compliance with any con-
comitant duties such as the prudent man of business
rule or, in Jersey, Article 21(3) of TJL. To the extent
that those powers and duties are validly excluded,
there is no further or separate enquiry about the man-
agement and administration of the asset arising from
the fact that if you single out one aspect of the
trustee’s ownership of it, you can call that aspect a
‘power’ (as well as giving it other labels such as ‘right’,
‘ability’, or ‘entitlement’, so on).
The key question to be asked is this: given that a
trustee owns a controlling shareholding in an under-
lying company, what duties in respect of the manage-
ment of that asset (which entails the power, right,
ability, and entitlement to obtain information and
intervene in the management of the company) does
the trustee owe his beneficiaries? If the governing law
of the trust allows for the validity of provisions such
as Clauses 4 and 5 in this case, the only—and com-
plete—answer to that question is ‘none, unless the
Dishonesty Proviso is engaged’.
Trusts & Trustees, Vol. 0, No. 0, Month?? 2019
In other words, the ‘powers and discretions’ to
which the opening words of Article 21(1) refer are
most naturally read as a reference to the trustee
powers and discretions conferred, to the extent not
modified, by Articles 24–29 of TJL and by the trust
instrument. The very phrase ‘powers and discretions’
is the hallowed speech of the equity draftsperson used
to refer quite precisely to the statutory and express
powers vested in trustees qua trustees. It would show
unfamiliarity with that idiom to speak of the same
things as trustee rights, entitlements, or abilities; yet
speaking in just those ways of a controlling share-
holder’s rights as member of a company to obtain
information and intervene in its management is per-
fectly appropriate.
It is the fallacy here identified (which is a species
of double counting, for want of a better metaphor)
that allows commentators to give with the one
hand (in endorsing the effectiveness of anti-
Bartlett provisions of the sort found in this case)
and to take with the other (by seeming to identifying
an extra ‘power’ dehors the trust for failure to exer-
cise which a trustee owner can yet be made liable
qua trustee).
It is perhaps worth noting, in concluding this sec-
tion that the court of appeal accepted Prof Matthews’
view that Clauses 4(d) and 5(d) of the First Schedule
were effective to exclude the obligations to which
they refer.17 In fact, Prof Matthews’ views touched
on Clauses 4 and 5 in their totality and not merely
sub-paragraphs (d) of each. The reference to the
latter seems to be a simple error of reference on
the part of the court since, immediately after refer-
ring to Clauses 4(d) and 5(d), Cheung JA said, ‘This
is the view of Prof Matthews’ and he immediately
quoted in full the passages of Prof Matthews’ evi-
dence quoted above which make plain that he was
17. See para 6.8.
18. D Hayton, P Matthews and C Mitchell (eds), Underhill and Hayton, Law of Trusts and Trustees (19th edn, LexisNexis 2016) para 48.58.
19. From and including the 16th edn.
20. The inference that there is endorsement of these clauses as effective flows from the last line of para 48.55 immediately preceding: ‘Most of the trustees’ duties,
under Bartlett v Barclays Bank Trust Co, Cowan v Scargill and the Trustee Act 2000 [ss 6(1), 21(3), 26 and sch 1 para 7] will be capable of exclusion.’
21. Clearly, therefore, referring to the company law power.
Article 7
not limiting his comments to Clauses 4(d) and 5(d).
It may be that the reference to Clause 4(d) is simply a
mistake for Clause 4(a), which refers to the duty to
intervene, since Clause 5(d) correctly refers to the
provision ousting the duty to obtain information
and it is clearly to those duties that Prof Matthews
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was referring.
So much for the Jersey position.
Back to England again
Professor David Hayton in Underhill and Hayton, Law
of Trusts and Trustees18 (‘Underhill’) has advanced a
similar, but significantly different, argument for the
validity, yet ineffectiveness, of anti-Bartlett clauses
over successive editions of that work.19
The argument is that the irreducible core content of
trusteeship includes an obligation to act where no
reasonable trustee would fail to act, irrespective of
any provision in the trust instrument. As such, it
has a superficial similarity to Prof Matthews’ argu-
ment in this case but, on analysis, it is radically
different.
In particular, paragraphs 48.56 and 48.57 of
Underhill express in relation to English law a view
that is substantially in accord with Prof Matthews’
views about the effectiveness, under Jersey law, of
Clauses 4 and 5 to exclude the obligations to
which they refer and the learned editors appear spe-
cifically to endorse as effective the exclusion of
both the duty to intervene, subject to something
like the Dishonesty Proviso, and the duty to obtain
information.20
In paragraph 48.58, however, reference is then
made to the situation where ‘the trustee does have
power to obtain information and to interfere (by
virtue of its controlling shareholding21) so far as
8 Article
necessary to protect beneficiaries’ interests’ (emphasis
added) and these observations follow:
Moreover, the trustee has an overriding duty to ex-
ercise its powers so as to safeguard and further the
beneficiaries’ interests as a whole.22 This duty at the
core of the trust cannot be ousted, as it forms part of
the ‘duty of the trustees to perform the trusts hon-
estly and in good faith for the benefit of the bene-
ficiaries’.23 If they ignored a significant drop in
profits from a preceding year, and then relied on
the presence of an exemption clause exempting
them from liability for a breach of trust (not being
dishonest) to justify refusing to inquire about such a
fall crying out for an explanation, they should lose its
protection, because in so refusing they acted reck-
lessly, which equates to dishonesty.24 There will ac-
cordingly be circumstances in which no reasonable
trustee25 could fail to exercise its power to obtain
information, so as to be able to interfere before ob-
taining actual knowledge of dishonesty on the part of
directors, because by that time it will almost always
be too late to protect the beneficiaries’ interests, dis-
honest persons often dissipating their assets so as to
have nothing left satisfy creditors.
The first part of this very condensed and intricate
argument (ie the first two sentences) is an appeal to
authority for the proposition that there is an ‘over-
riding’ duty to exercise powers to safeguard the
beneficiaries’ interests, which cannot be ousted
by any term of the instrument. This is a sufficient
premise for the argument that follows the first two
sentences only if the authorities cited establish that
the terms of a trust (eg those which, on the face of
it, prevent a trustee from exercising a power) can be
overridden if (i) the trustee has that power and (ii)
considers in good faith that exercising it is the best
22. Cowan v Scargill [1985] Ch 270 and Beauclerk v Ashburnham (1845) 8 Beav 322 are footnoted here, without comment, as authorities for this proposition.
23. Armitage v Nurse [1998] Ch 241, 253.
24. ibid 254.
25. The same point as is made in relation to Prof Matthews’ resort to this terminology applies here; additionally, it cannot refer to ordinary negligence since the
duty of prudence is manifestly not part of the irreducible core content of trusteeship.
26. Beauclerk (n 22).
27. Amusingly to modern ears, Counsel for the infant remainderman submitted that ‘the place is not convenient, for considering its locality, it will be subject to
great fluctuations in value, depending on the caprice of fashion’.
Trusts & Trustees, Vol. 0, No. 0, Month?? 2019
way to safeguard the beneficiaries’ interests.
As applied to Clause 4(a), it would mean that
the duty to refrain from intervening in the PIC’s
affairs unless the Dishonesty Proviso is engaged
can, and therefore must in some circumstances
where the Dishonesty Proviso is not engaged, be
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overridden.
The second part of the argument (ie all that follows
the second sentence), seems to be a worked out ex-
ample of a circumstance in which the irreducible core
duty of good faith might be breached. It is helpful to
analyse each part separately.
The first part of the argument: Beauclerk v
Ashburnham26 does not support, let alone establish,
the proposition for which it is cited. In that case, a bill
to compel or remove two out of four trustees was
brought by the life tenant of a settlement on the
ground that they would not concur with their fellow
trustees in acting upon the direction of the life tenant
to buy leasehold interests in two houses on Lyall
Street and Chesham Place, Belgravia (for the purpose
of producing income for the life tenant) in circum-
stances where the life expectancy of the life tenant and
the length of the lease meant it highly likely that the
remainderman (the life tenant’s daughter) would
obtain no benefit from the investment. The bill
failed and the Master of the Rolls thought the recal-
citrant trustees well within their rights in taking the
view that they did.
The settlement provided that the trustees ‘are
hereby authorized and required . . . by and with the
consent and direction of the [the life tenant] . . . to
purchase . . . leasehold hereditaments . . . and either
with or without requiring the production of, or
enquiring into the title of the lessor . . . in some con-
venient place or places in England or Wales . . .
[emphases added]’.27 The court’s very briefly reported
decision was no more than that, upon the true
Trusts & Trustees, Vol. 0, No. 0, Month?? 2019 Article 9

construction of the instrument, discretion as to these
matters was reserved to the trustees:
The Master of the Rolls said, he was afraid of adopting
the declaration asked by the Plaintiff, for the trustees
had many things to consider. . . . that the trustees were
That is, with respect, trite law and neither this
dictum nor, seemingly, any other aspect of the deci-
sion supports the proposition that the terms of a trust
may be overridden.
In short, there appears to be no English authority
establishing that a provision in a trust instrument that

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not entitled to reject this property as an investment,
simply on the ground that it consisted of leasehold
houses.28 That he did not mean to say anything
about these particular houses, or as to their title, situ-
ation, description &c. for he considered that the trus-
tees had a most important discretion to exercise in
respect to those matters, which he did not mean, in
the least, to interfere with . . ..
No provision of the settlement was overridden at
all. The matters in which Lord Langdale thought the
trustees had discretion (title and situation) were
clearly reserved to their discretion by the terms of
the settlement and counsel for Ashburnham had ex-
pressly put his case as a matter of construction, not
law: ‘The trustees were intended to have a discretion,
and they ought to have regard to the interests of all
the parties.’29 Counsel for the infant remainderman
did likewise.30
As to Cowan v Scargill, it would appear that the
only relevance of this case is a dictum of Megarry V-
C, in the context of (again) the desire of some re-
calcitrant trustees to invest the funds of a miners’
pension fund in accordance with ethical or political
principles which investments might not have pro-
duced as great a financial return for the pensioners:
The starting point is the duty of trustees to exercise
their powers in the best interests of the present and
future beneficiaries of the trust, holding the scales im-
partially between different classes of beneficiaries. This
duty of the trustees is paramount.
cuts down or seeks to forestall exercise of a legal,
statutory, or equitable power otherwise available to
trustees, and whether touching investment or other
aspects of management of the trust assets, by requir-
ing them to invest or act in accordance with the dir-
ection of another, or, again, to refrain from specified
action, may be overridden by trustees who, in good
faith, judge the interests of some or all of the bene-
ficiaries to require action from them otherwise than
in accordance with the trust instrument.
There appears to be no English authority es-
tablishing that a provision in a trust instrument
that cuts down or seeks to forestall exercise of
a legal, statutory, or equitable power otherwise
available to trustees, and whether touching in-
vestment or other aspects of management of
the trust assets, by requiring them to invest or
act in accordance with the direction of another,
or, again, to refrain from specified action, may
be overridden by trustees who, in good faith,
judge theinterests ofsome orallofthe benefici-
aries to require action from them otherwise
than in accordance with the trust instrument
Turning to the second part of the Underhill argu-
ment, this seeks to make a quite distinct point that if,
in fact, the trustees obtain information that shows a
loss in value in the underlying company ‘crying out
for an explanation’,31 any refusal32 thereafter to en-
quire further and exercise company law powers under
the company’s articles to obtain information and, if

28. If anything, this conclusion argues against the Underhill view since it was fundamentally for this reason that the recalcitrant trustees would not play ball but
they were not entitled to override the provision of the settlement (that the life tenant could direct investment in leaseholds) even though they thought such
investment injurious to the remainderman.
29. Beauclerk (n 22) 325.
30. ‘It is clear, however, that they have some discretion, for they are to invest in leaseholds ‘‘either with or without requiring the production of, or enquiring into
the title of the lessor’’.’
31. Which must equate to the sort of scenario that, if ignored, would amount to gross negligence.
32. This is a weasel word in this context: there is all the world of difference between omitting (or neglecting) and refusing to enquire further.
10 Article
necessary, intervene will be a breach of the irreducible
core duty of good faith. There are a number of points
to be made about this.
First, this is not, unlike the first part of the argu-
ment, an argument of general application. It has pur-
chase only if a certain state of affairs obtains (ie the
trustee acquires information of a certain kind).
Secondly, and more fundamentally, the duty of
good faith is that of good faith administration of
the trust that is reposed in the trustees. It is necessary
to ask, therefore: what trust, and what obligations,
has a trustee accepted? If it accepts a trust on terms
that include a provision such as that sets out in First
Schedule, paragraph 4(a)(ii) of the Trust, that will
include the obligation to leave the administration,
management, and conduct of the business of the
underlying to its directors and other authorized
persons unless it has actual knowledge of dishon-
esty. If it is permissible to accept such obligation
(and both Prof Matthews, as expert in this case,
and Underhill are clear that it is, since both are of
the view that clauses such as 4 and 5 of the Trust
validly exclude the obligations to which they refer
under, respectively, Jersey and English law), that
places a real limit on what a trustee can do with
its undoubted legal power as member of the under-
lying company to obtain information or intervene
in its management. A trustee cannot be criticized
for keeping within the limits of its powers, on the
contrary.
Thirdly, the argument elides gross negligence into
dishonesty. Information that ‘cries out’ for an ex-
planation might well be ignored (ie simply not fur-
ther processed mentally by any individual, or
processed and forgotten, or processed and not
understood and, whichever way, not acted on appro-
priately) by a grossly negligent trustee without any
dishonesty, recklessness, or wilful blindness.
Unfortunately, that happens from time to time. It
is potentially a different case if, possessed of that
information, the trustee refuses to enquire further.
33. In which case, both the Matthews and Underhill views (that Clauses 4 and 5 are effective according to their terms) require some modification.
Trusts & Trustees, Vol. 0, No. 0, Month?? 2019
But again, it depends on the reason for the refusal
whether that will amount to Nelsonian knowledge or
wilful blindness sufficient to deprive it of the ability
to rely on a provision such as the Dishonesty Proviso
(which purports to require actual knowledge).33 If
the trustee has formed the view, however, ill-advised
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but honestly held, that the information does not
require further enquiry, such refusal will not
amount to a breach of the core duty of good faith
administration.
If the trustee has formed the view, however, ill-
advised but honestly held, that the information
does not require further enquiry, such refusal
will not amount to a breach of the core duty of
good faith administration
Concluding observations
This article has examined the reasons relied on by the
Hong Kong court of appeal for, in effect, dis-applying
as a matter of Jersey law a very well drafted anti-
Bartlett clause that was manifestly designed to
permit and require a trustee to leave the management
of an underlying company to its board and advisers
other than in a case where it became aware of dishon-
esty in the management of the company’s affairs. It
did so because the trustee’s own expert witness
opined that, despite the admitted effectiveness of
the clause, a residual obligation to exercise available
powers in the beneficiaries’ interests was left un-
touched by it. It has been argued that, where a trust
instrument validly excludes a trustee’s Bartlett-type
duties in the terms of Clauses 4 and 5 of the Trust,
there is no such residual obligation upon trustees
based on the negligence standard either in English
or Jersey law and that the core, irreducible duty of
good faith cannot be contorted to achieve a different
result in relation to trustees who have been guilty of
even gross negligence.
Trusts & Trustees, Vol. 0, No. 0, Month?? 2019 Article 11

Ray Davern is a partner in the Maples Group’s Trusts & Private Client team. His expertise includes contentious
and non-contentious international trusts and private client work in both the British Virgin Islands and the
Cayman Islands. Davern started with the Maples Group in 2016. Prior to that, he was head of the private client
and trusts group for an offshore law firm. Davern previously lectured at King’s College London, specializing in the
law of trusts, and practised as a Chancery barrister at the London Bar. Davern has been recognized in Legal 500
and ranked within the top 20 in private wealth management by Citywealth. He has also been ranked in the

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Chambers and Partners High Net Worth guide.